As initially reported last week on Feb. 11, Reddit confirmed a Series D funding round led by $150 million from Tencent, placing the company at a $3 billion post-money valuation.
The influx of cash will likely allow the online discussion platform, long billed as the “front page of the internet,” to further scale up and compete for ad dollars with the likes of Facebook and Twitter.
What would be, under other circumstances, a fairly standard deal has quickly become a hot-button issue. Fears of Chinese-style censorship are overblown—but business needs may push Reddit away from its legacy “anything goes” content model nonetheless.
Tencent’s investment empire
Tencent has morphed from one of China’s top gaming and social media companies to one of the most powerful investors in the country’s thriving startup ecosystem. The Shenzhen-based tech titan has set its sights on a piece of the internet pie outside of China as well.
By most accounts, Tencent has built a good name for itself in how it has managed its VC investments. In contrast to rival Alibaba’s more heavy-handed approach of acquiring firms outright and taking direct control, Tencent is known for a hands-off style that often leaves control in the hands of the firms’ founding teams.
By investing in Reddit, Tencent broadens its exposure in the social media and online advertising space outside of China. Chinese players have begun to enter spaces dominated by Facebook, Google, and Twitter—the most successful of these is Beijing-based Bytedance, which has attempted to replicate its domestic success with internationally focused apps like short-video platform Tiktok, news aggregators such as TopBuzz, and Indian local-language app Helo.
Reddit will be the second major US-based social media platform in Tencent’s portfolio. In late 2017, it became the single largest shareholder in Snap—a move that has thus far not turned out well, with Snap losing approximately 40% of its value in the past year.
The big question is whether these investments will draw the attention of the US Committee on Foreign Investment. CFIUS has been far stricter with regards to Chinese investment in recent years, blocking not only deals that would put sensitive technology in the hands of Chinese companies, but also those involving personal user data. An early-2018 attempt by Alibaba-affiliated Ant Financial to acquire MoneyGram was rejected over these concerns.
‘Wrath of the Redditors’
While the Reddit investment may make good business sense for Tencent, it’s hard to imagine how two brands could be any more different. Reddit, one of the most loosely moderated forums on the mainstream internet, covers the spectrum from cutting-edge reporting and in-depth discussions to trolling, profanity, and conspiracy theory rabbit holes. Tencent, in contrast, is the firm behind WeChat, the uber-popular Chinese platform that is a central hub in the Chinese Communist Party’s heavy-handed censorship and surveillance regime. Unsurprisingly, Reddit is blocked in mainland China.
This contrast was not lost on Reddit’s user base. While many “Redditors” expressed concern and outrage, warning that Tencent could threaten the platform’s ideal of free speech, the overwhelming response came in the form most characteristic of the Reddit community: snarky memes.
Redditors jokingly began producing and sharing memes that they speculated would soon be banned on the Tencent-backed iteration of the platform. The bulk of the most upvoted posts featured comparisons of Chinese President Xi Jinping to Winnie the Pooh, famously censored on the Chinese internet.
However, it is highly unlikely that Tencent’s investment will lead to greater censorship of the Reddit platform, as TechCrunch’s Jon Russell explained in a recent piece. Tencent’s investment equals just 5% of Reddit’s total valuation, making them hardly the only voices in the room.
A relic of an older internet
If Reddit is going to change, it will be for financial, not political, reasons. The world of social media is changing, and the typical Redditor is no longer the typical internet user. Redditors are mostly young (roughly 60 percent are under 34), predominantly male (as high as 75%), and largely hail from Western, English-speaking countries.
In other words, the Reddit community looks a lot like the internet of the early 2000s. Its message board-style layout reminds me of the online communities I hung out in during my high school years 15 years ago. The norms of behavior on the platform are typical of the internet subculture of that time, filled with inside jokes and memes, as well as language that ranges from edgy and “politically incorrect” to bigoted, offensive harassment.
While the demographics and norms of Reddit’s community may not have changed much over the years, the internet as a whole has broadened to include a wider range of age groups, nationalities, languages, education levels, and worldviews. The average internet user now looks much more like the average human being.
Many of the internet’s newer users do not agree with the norms established by the more culturally homogenous cohort of the web’s early years. The content of today’s internet also has more destructive potential than it did in the past. Adherents to conspiracy theories or radical religious ideologies were once relegated to small message boards with a few hundred members, but on today’s internet, those people have the tools to reach millions of people and to do serious damage to society, both online and offline. A global consensus has emerged that online platforms and the content they contain need to be managed in one way or another. Reddit is more likely to be changed by regulation in its core Western markets than in China.
Change from shareholders, not China
Not only does Reddit have the user demographics, norms, and look and feel of yesteryear’s internet platforms, but it retains their business model as well.
Even as the internet, including social media, has become big business, Reddit has in large part chosen not to cash in. While Twitter and Facebook boast annual revenues per user (ARPU) of $9.48 and $7.37 respectively, Reddit’s annual revenue of roughly $100 million and 330 million monthly active users (MAU) make the platform’s ARPU a relatively miniscule $0.30.
Tencent is an investor. We can assume that they would like to make a return on that investment. This will probably mean a stronger emphasis on user monetization, and that will almost surely mean some changes to the user experience.
The response to Tencent’s investment is a reminder for Chinese companies to be sensitive to areas of political and cultural sensitivity in their overseas investments. Tencent will likely change Reddit, but those changes will have less to do with Winnie the Pooh—and more to do with money.